Northern Rock plc Compensation Scheme Order 2008

My Lords, I am a member of the Merits Committee and, as it happens, of the Delegated Powers Committee. I do not intend to speak on the points made by either of those committees but shall start with a general point on this order. In the Explanatory Memorandum, and indeed in the impact assessment, the Treasury has chosen to say, under ““Policy Background””: "““The purpose of the Act is to enable the Government to act to secure the continued stability of the UK financial system””." In the impact assessment, in answer to the question, "““Why is government intervention necessary?””," the Treasury says, "““for the purposes of maintaining stability in the UK financial system””." I suggest to the Minister that that was a mistake by the Treasury, because it is over the top. The fact was that a FTSE 100 company with a 7.5 per cent market share chose, at times when people were already issuing plenty of warning signals, to increase its market share to 20 per cent by underselling the market. When the history book is written, it will be shown that Northern Rock’s behaviour was in fact no threat to the financial stability of the UK system. To keep on telling the world that it was is not helping the British economy, the City of London or, indeed, the whole system of financial regulation which applies in this country. I am fully aware—the whole House is—of the multiplicity of questions that the noble Lord, Lord Davies of Oldham, is expected to answer. But even when my noble friend Lady Noakes puts a ball right down the middle of the pitch, maybe with a bit of in-swing on it, heading towards the stumps, the noble Lord kicks it aside. It is true that in Oldham they do not recognise the LBW rule; they cry from the stands, ““Give the lad a chance”” and carry on with the game. The noble Lord is already facing a huge number of questions. There are 26 Written Questions in last Friday's House of Lords edition of Written Questions. Although none of them goes directly towards the compensation order, there is one tabled by the noble Lord, Lord Barnett, who is not in his place, to which I shall return later. But before that I should like to try to illustrate one or two of the difficulties of assessing the value of Northern Rock shares. Article 3 of Part 2 of the order is headed: "““Transfer of Northern Rock shares””," and refers to, "““compensation payable by the Treasury to persons who held shares … immediately before they were transferred””." However, at the moment immediately before they were transferred they were suspended but there was an unofficial market in the shares. Between September—reference has been made to September already—and February, five months elapsed during which many changes in shareholding took place. Some of them were no doubt undertaken at the risk of the people who decided to buy. I declare an interest as a trustee of a charity that sold its small holding of Northern Rock shares for somewhere between £2 and £3 in the middle of the five-month period on the ground that it was better to be safe than sorry. So when the assessor reads Article 6(a), which states, "““unable to continue as a going concern””," he will have to throw his mind back to September because in February Northern Rock was a going concern because the Bank of England had lent it a lot of money. There was no doubt that it was trading and the directors had not issued any statement to the effect that it was not a going concern. So it was only in September last year, on the assumption that the Bank of England did not lend Northern Rock money, that it would not have been at that time a going concern. I rather agree with my noble friend Lady Noakes that it is a pretty open question whether it would have been in administration. Nevertheless, the assessor has to try to determine what was thought by the market to be the value of the shares immediately before transfer when the Bill was already known about. What was the value of the shares back in September according to the assumptions in this order and what about the market in the shares in the five months between the one event and the other? I think that somebody will argue that there was a false market on occasions during those five months. As regards the 26 questions, I return to the Question for Written Answer, which is relevant to the order; namely, that of the noble Lord, Lord Barnett, "““to ask Her Majesty’s Government whether they will publish the due diligence undertaken on Northern Rock””." I dare say that the noble Lord, Lord Davies, will say, ““I shall answer that question when I have to. I do not have to answer it this evening and I am not sure what the answer will be””. However, I believe that the assessor will need to know what was the due diligence done by the Bank of England and the Treasury which led to the decision that the Bank of England would lend money and that the Treasury would guarantee the depositors. I do not see how you bridge the gap between last September and February and the matter of compensation without understanding the work that was done then. Of course, the noble Lord, Lord Barnett, may also have in mind the due diligence done by Virgin and Goldman Sachs’s reports on due diligence. We have asked before when Parliament will know about the due diligence. Will it ever be published and, if so, when is that likely to be? Finally, I reinforce the point made by the noble Lord, Lord Newby. Exactly how long is this process expected to take with the valuation, the questioning of the valuation and perhaps an appearance before the tribunal and the complications of different jurisdictions, which has already been mentioned? I am sure that Her Majesty’s Treasury will have given the Government an estimate of the length of time this will take. Are the Government willing to tell us what that estimate is?